War in Ukraine
The war in Ukraine and the resulting consequences, such as the energy crisis and inflation, continued to have a significant impact on the consolidated financial statements in financial year 2022/23. METRO is represented in both Ukraine and Russia.
Estimates and assumptions
The preparation of these consolidated financial statements was based on estimates and assumptions, taking into account the changes in the business environment described above, which affected the disclosure and amount of assets and liabilities, income and expenses and contingent liabilities. Estimates and underlying assumptions with major effects were particularly made in connection with the war in Ukraine with respect to the following situations:
- Impairment testing of assets with and without a definite useful life, including goodwill, brand rights with indefinite useful lives, and customer bases, if necessary including a sensitivity analysis.
- Recoverability of receivables – in particular trade receivables and receivables due from suppliers.
- Measurement of inventories, particularly with regard to write-downs to lower net realisable values.
For METRO Russia and METRO Ukraine, goodwill was already fully impaired as of 31 March 2022.
Additionally, in the previous year, impairment losses between 50% and 100% of the remaining carrying amount were recognised on tangible assets in stores in Ukraine that are geographically close to the crisis areas and whose sales and earnings expectations have collapsed significantly. Markets in Russia were analysed and impaired as needed on the basis of current earnings expectations and real estate measurements. After impairment, the carrying amount corresponds to the recoverable amount.
The valuation of inventories and receivables considered risk provisions that were in line with the current business environment.
In addition to the issues resulting from the war in Ukraine, valuation adjustments may especially arise for the following items within the next financial year:
- Assets with and without a definite useful life, including goodwill, brand rights with indeterminable useful lives, and customer bases. Meanwhile, short-term declines in earnings have no impact on the existing carrying amounts of goodwill (no. 17 – goodwill and other intangible assets and no. 18 – property, plant and equipment).
Further valuation adjustments may arise for the following items:
- For the valuation of receivables, increased specific bad debt allowances have been made since the beginning of the war in Ukraine, particularly in units with longer payment terms and a high exposure to the HoReCa sector. Furthermore, the future element was reflected in a risk-adequate amount as part of the general risk provisioning in accordance with IFRS 9 (no. 23 – trade receivables). For the risk assessment, the consequences of the war in Ukraine, such as the energy crisis and inflation, are continuously monitored under the current political environment.
- Pension provisions (no. 28 – provisions for post-employment benefits plans and similar obligations)
Management judgement
Information on the key judgemental decisions that materially affected the amounts reported in these consolidated financial statements relates to the following circumstances or note disclosures:
- Determination of lease terms, taking into account relevant facts and circumstances relating to economic incentives affecting the likelihood of tenants exercising renewal options or not exercising termination options, as well as determination of the incremental borrowing rate (no. 42 – leases)